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Notice

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Amending the Exchange's Automatic Execution Facility (NYSE Direct+)

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Start Preamble September 20, 2002.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on August 29, 2002, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the NYSE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The proposed rule change consists of amendments to Exchange Rules governing NYSE Direct+® (“Direct+”). The rule amendments propose to: (i) Amend Rule 13 to provide for a one-year pilot program to expand Direct+ order size eligibility for Investment Company Units, including Exchange-Traded Funds (“ETFs”), and Trust Issued Receipts, such as Holding Company Depositary Receipts (“HOLDRs”); [3] (ii) amend Rule 1002 to include ETFs and HOLDRs and provide that ETFs trade until 4:15 p.m.; and (iii) amend Rule 1005 to reflect that the rule applies to ETFs and HOLDRs. Below is the text of the proposed rule change. Proposed new text is italicized and proposed deleted text is [bracketed].

Rule 13: Definitions of Orders

* * * * *

Auto Ex Order

An auto ex order is a limit order of 1099 shares or less priced at or above the Exchange's published offer (in the case of an order to buy) or at or below the Exchange's published bid (in the case of an order to sell), which a member or member organization has entered for automatic execution in accordance with, and to the extent provided by, Exchange Rules 1000-1005.

Pursuant to a one-year pilot program, orders in Investment Company Units (as defined in paragraph 703.16 of the Listed Company Manual), or Trust Issued Receipts (as defined in Rule 1200) may be entered as limit orders in an amount greater than 1099 shares. The pilot program shall provide for a gradual, phased-in raising of order size eligibility, up to a maximum of 10,000 shares. Each raising of order size eligibility shall be preceded by a minimum of a one week advance notice to the Exchange's membership.

* * * * *

NYSE DIRECT+TM: RULES GOVERNING AUTOMATIC EXECUTION OF LIMIT ORDERS OF A SPECIFIED SIZE

Rules 1000-1001: No change.

Rule 1002: Availability of Automatic Execution Feature

Orders designated as “auto ex” in a particular stock, Investment Company Unit (as defined in paragraph 703.16 of the Listed Company Manual), or Trust Issued Receipt (as defined in Rule 1200) shall be eligible to receive an automatic execution if entered after the Exchange Start Printed Page 61369has disseminated a published bid or [order] offer [in that stock], until 3:59 p.m. for stocks and Trust Issued Receipts, or 4:14 p.m. for Investment Company Units, or within one minute of any other closing time of the Exchange's floor market. Orders designated as “auto ex” in a particular stock, Trust Issued Receipt, or Investment Company Unit that are entered prior to the dissemination of a bid or offer [in that stock], [or] after 3:59 p.m. for stocks and Trust Issued Receipts, [or] after 4:14 p.m. for Investment Company Units, or within one minute of any other closing time, shall be displayed as limit orders in the auction market.

Rules 1003—1004: No change.

Rule 1005: Orders May Not Be Broken Into Smaller Amounts

An auto ex order for any account in which the same person is directly or indirectly interested may only be entered at intervals of no less than 30 seconds between entry of each such order in a stock, Investment Company Unit (as defined in paragraph 703.16 of the Listed Company Manual), or Trust Issued Receipt (as defined in Rule 1200).

* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the NYSE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below and is set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

NYSE Direct+ provides for the automatic execution of limit orders in a stock (“auto ex” orders) against trading interest reflected in the Exchange's published quotation.[4] An auto ex order priced at or above the Exchange's published offer price (in the case of an auto ex order to buy), or an auto ex order priced at or below the Exchange's published bid price (in the case of an auto ex order to sell) would receive an automatic execution without being exposed to the auction market, provided the bid or offer is still available.

Currently, order size eligibility for all auto ex orders for stocks is 1099 shares or less. The Exchange is proposing to expand the size of orders eligible for automatic execution under NYSE Direct+ to a maximum of 10,000 shares for two Exchange products. These are Investment Company Units (as defined in paragraph 703.16 of the Listed Company Manual), including ETFs,[5] and Trust Issued Receipts (such as HOLDRs),[6] which are defined in Rule 1200. The Exchange believes that the increase in the number of shares eligible for automatic execution for Investment Company Units and Trust Issued Receipts will serve to attract additional order flow to NYSE Direct+.[7] The expanded order size would be phased in as a pilot program, with order size raised on a gradual, “stair step” basis to a maximum of 10,000 shares as experience is gained. The proposed pilot program time period is one year.

Rule 13

The change to Rule 13 codifies the pilot program.

Rule 1002

Rule 1002 currently provides that auto ex orders may be entered on any day in a particular stock from the time the Exchange has published a bid or offer in that stock until 3:59 p.m. If orders designated as auto ex are entered before a quote is published or after 3:59 p.m., the orders will be treated as limit orders in the auction market.

Exchange Rule 1100 provides that any series of Investment Company Units so designated by the Exchange may be traded on the Exchange until 4:15 p.m. each business day to match the trading hours of related futures contracts. The Exchange may close trading at an early time to coincide with the close of trading in a related futures contract, where applicable. Therefore, the Exchange is proposing to amend Rule 1002 to include orders in Investment Company Units and Trust Issued Receipts and to provide that orders in Investment Company Units trade until 4:15 p.m.[8]

Rule 1005

Rule 1005 in part provides that auto ex orders for the same customer in the same stock may be entered at time intervals of no less than 30 seconds between entry of each such order. The proposed amendment reflects that the rule will also apply to Investment Company Units and Trust Issued Receipts.[9]

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with section 6(b)(5),[10] which requires an Exchange to have rules that are designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange also believes that the proposed rule change is designed to support the principles of section 11A(a)(1) of the Act [11] in that it seeks to assure economically efficient execution of securities transactions, make it practicable for brokers to execute investors' orders in the best market, and provide an opportunity for investors' orders to be executed without the participation of a dealer.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

The Exchange has neither solicited nor received written comments on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or Start Printed Page 61370(ii) as to which the NYSE consents, the Commission will:

(A) By order approve the proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the NYSE. All submissions should refer to File No. SR-NYSE-2002-37 and should be submitted by October 21, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated Authority.[12]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  The proposal applies to the broader categories of Investment Company Units (as defined in paragraph 703.16 of the Listed Company Manual) and Trust Issued Receipts (as defined in Rule 1200), among which ETFs and HOLDRs are a part. Telephone conversation between Donald Siemer, Director, Market Surveillance, NYSE, Terri Evans, Assistant Director, Sonia Patton, Special Counsel, and Steve Williams, Economist, Division of Market Regulation, Commission, September 18, 2002.

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4.  NYSE Direct+ was originally filed as a one-year pilot. It was approved in Securities Exchange Act Release No. 43767 (December 22, 2000), 66 FR 834 (January 4, 2001). The pilot was subsequently extended for an additional year by SR-NYSE-2001-50 and approved by Securities Exchange Act Release No. 45331 (January 24, 2002), 67 FR 5024 (February 1, 2002).

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5.  See Securities Exchange Act Release No. 44616 (July 30, 2001), 66 FR 40761 (August 3, 2001) (NYSE rules and policies were amended to accommodate the trading of certain ETFs on an unlisted trading privileges (“UTP”) basis).

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6.  See Securities Exchange Act Release No. 45718 (April 9, 2002), 67 FR 18965 (April 17, 2002) (Adopted listing standards for the listing and trading, or the UTP trading, of Trust Issued Receipts under NYSE Rules 1200 through 1202, and 703.20 of the NYSE's Listed Company Manual); and SR-NYSE-2002-15, approved by Securities Exchange Act Release No. 45729 (April 10, 2002), 67 FR 18970 (April 17, 2002) (Adopted standards for UTP trading of HOLDERs).

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7.  See supra note 3.

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[FR Doc. 02-24754 Filed 9-27-02; 8:45 am]

BILLING CODE 8010-01-P